Another day, another Florida property insurance company finds itself in financial trouble. This time, it’s Sunrise, Florida based FedNat Insurance Company and its affiliates, Maison Insurance and Monarch National Insurance that are facing increased scrutiny from regulators.
A pair of filings on Thursday, one with the federal Securities and Exchange Commission (SEC), the other with the Florida Office of Insurance Regulation (FOIR), combine to paint a gloomy picture for the company. FedNat and its affiliates serve approximately 152,000 policyholders in Florida, and another 96,000 policyholders spread across Alabama, Louisiana, Mississippi, South Carolina and Texas. But the company recently announced it planned to pull out of all other markets except for Florida in an effort to shore up its financial foundation.
FedNat acknowledged in an 8K filing with the SEC that “there is substantial doubt regarding its ability to continue as a going concern under generally accepted accounting principles (“GAAP”).” For publicly traded companies, an 8K filing is required to notify their shareholders and the Securities and Exchange Commission (SEC) when an “unscheduled material event” takes place.
That unscheduled material event could be related to the other document made public on Thursday by Florida insurance regulators at FOIR. Late Thursday, FedNat entered into a consent agreement with FOIR in which the insurer agreed to file a plan with the state no later than Friday, April 29th, 2022 (one week from today), outlining the insurer’s ability to secure and maintain a financial strength rating that would be acceptable to the secondary mortgage market.
A spokeswoman for FOIR declined to comment on the matter.
Earlier this month, FedNat was downgraded from an “A” rating to an “S” financial stability rating by Demotech, which provides unbiased financial strength ratings for insurance companies. The federally backed mortgage insurers Fannie Mae and Freddie Mac will not underwrite mortgages on properties unless the property insurer is “A” rated by Demotech.
FedNat also recently failed to file its annual 10k report with the Securities and Exchange Commission (SEC), triggering a notice of non-compliance from NASDAQ. FedNat has until May 31st, 2022 to file the report, and has issued a press release saying they will beat the deadline. However, as previously mentioned, the 10K filing will include language warning investors about the company’s doubts over its ability to remain in business.
According to the consent agreement with Florida regulators, FedNat must also demonstrate that it can acquire sufficient reinsurance before its July 1, 2022 renewal date, as well as show that the company can support its existing business by securing additional capital, and address its non-Florida losses and policies.
Florida lawmakers plan to convene in May to address the spate of failures within Florida’s property and casualty insurance market that has been clobbered by lawsuits stemming from hurricane and storm related claims over the last several years.